The car manufacturing, home building and banking sectors are among the industries bearing the brunt of the global economic crisis, but the mobile telecoms market is proving surprisingly resilient. So far, it has not asked for bailouts, but is requesting that governments provide more market certainty.

Most economists agree that infrastructure spending is the best route out of the recession. “If we act co-operatively, especially around the G-20 process, look for ways to restimulate the world economy by finding new sources of growth, and recognise that while the major economies are dramatically hit by this shock, it is actually the emerging markets and the developing world more generally that will likely lead the world out of this recession, then we can put in perspective where we are and the role the mobile telecoms industry can play,” says Jeffrey Sachs, director of The Earth Institute at New York’s Columbia University.

Advertisement

Mr Sachs believes that China is likely to lead the world out of recession, that India can maintain growth and that even sub-Saharan Africa will provide a market as well as a source of growth. He says: “The technology that is embodied by this sector, beyond mobile telephony and mobile broadband to smart machine-to-machine communication, smart grids and other applications of wireless broadband technology, is not only still a source of profitable investment, but also a source of massive productivity gains and massive inclusion of different parts of the world that lead directly to their economic empowerment. This is true from the poorest villages in the world to the largest emerging markets. This sector will display resilience in its own growth because it is a technology that is still in a dramatic, even revolutionary, up-phase.”

In China, issuance of third-­generation (3G) licences should boost the country’s economy. “It will stimulate the manufacturing industry and will create at least 300,000 new jobs,” says Wang Jianzhou, CEO of China Mobile. “Capital expenditure will be about $45bn for three operators. It will stimulate con­sumption and more mobile phones will be sold.”

Admittedly, the sector is not without its challenges. Several leading handset manufacturers have announced thousands of job losses. In March, Sony Ericsson, the world’s fourth largest handset manufacturer, predicted a pre-tax loss of up to €390m in the first quarter of 2009, compared with net income of €133m for the same period a year ago. Mean­while, Nokia, the world’s number one handset manufacturer, revised its forecast for 2009 mobile device volumes to drop by 10% on 2008.

 

Significant milestone

However, there could be signs of optimism in the wider telecoms market. “In 2008, the industry passed a milestone of 4 billion subscriptions in the world,” says Carl-Henric Svanberg, CEO of Ericsson. “That compares with 500 million to 600 million in 2003 after the dot-com crisis. But it was also a year for mob­ile broadband breakthrough with a doubling of service users in Europe.”

This growth is in evidence in both emerging and developed economies. Franco Bernabè, CEO of Telecom Italia, says that Italy has seen a 210% increase in mobile data traffic in the past year. He adds that all of the company’s Italian networks accommodate seven megabits, with 14.4 megabits now being introduced in Rome and Milan.

Demand remains high in China, even though the country faces some stiff economic challenges. In 2008, China Mobile gained 88 million subscribers; and it is adding at least 7 million every month. “We now have 460 million subscribers,” says Mr Wang. Mobile usage remains high, with the company reporting that it carried 9 billion text messages at Chinese New Year alone. He expects huge market demand for mobile broadband, with an estimated 200 million China Mobile subscribers already using their phones for internet access, 140 million for instant messaging and 300 million for mobile music.

Telecoms leaders say government support for the roll-out of mobile broadband services is crucial to driving economic growth. According to a new report, 3G Mobile Networks in Emerging Markets: The Importance of Timely Investment and Adoption, by Professor Leonard Waverman and consultancy LECG for the mobile communications industry organisation, the GSMA, says the release of new spectrum for mobile broadband services this year will add the equivalent of $211bn to China’s GDP, and could boost India’s GDP by $95bn. The GSMA says that the roll-out of mobile broadband networks will create hundreds of thousands of jobs, encourage business start-ups, improve productivity and boost consumer spending.

“In the UK, communications minister Lord Carter is pointing to infrastructure, and particularly telecoms infrastructure, spend for broadband,” says Rob Conway, CEO and member of the board of the GSMA. “He said that the communications sector represents ‘an engine for growth to shorten the downturn, but only if governments set the

right strategic framework’.”

It is not only the UK that is looking at this route for growth. Mr Conway says the US stimulus package has earmarked $7.2bn for broadband, and China is about to embark on the most sweeping extension of mobile broadband of any country, pouring up to $59bn into its deployment over the next three years.

 

Digital dividend

The success of broadband means the industry will eventually run out of future capacity without new spectrum. “Much of that new spectrum must come from the digital dividend [the spectrum that is released when broadcasters move from analogue to digital],” says Mr Conway.

Of the 400 megahertz (MHz) of low-frequency spectrum freed up when analogue television is switched off, the GSMA says that 100MHz should be used to enable the roll-out of mobile broadband networks. The organisation claims that deploying a mobile broadband network using the 700MHz spectrum can cost 70% less than one using the 2100MHz spectrum underpinning most of today’s 3G mobile networks. “This means that rural coverage is economically viable. It also ensures deeper in-building coverage in all of the urban zones,” says Mr Conway.

The industry is calling for harmonisation of the spectrum across countries. “This will help speed up mobile broadband adoption. We’ve seen this before with the second-generation business model, which has shown that when the GSMA standard started to multiply and spread, we grew to an industry of 4 billion users, and it is only natural to expect mobile broadband to do the same,” says Jon Fredrik Baksaas, CEO of Telenor Group.

“The evolution of mobile broadband is proof that capital expenditure by operators lays the foundations for the growth of an entire ecosystem,” says Mr Bernabè. “In the uncertain economic climate, it is unimaginable that we will enter a new phase of European and worldwide growth if we do not have sufficient availability of bandwidth,” he says. “Bandwidth is the necessary driver for direct investments such as radio access infrastructure and demand for fibre-optic backhauling; it is also a driver of indirect investment, through the emergence of new market players and new services. If we wish to repeat the successes of the past, this potential may only be realised fully within a harmonious regulatory context.”